Dollar Weakens on Fed Bond-Purchase Speculation; Krona Advances

The dollar fell against all of its 16 most-traded peers amid bets Federal Reserve Chairman Ben S. Bernanke will signal the central bank plans to maintain bond purchases that risk debasing the currency.

Europe’s 17-nation currency traded at almost its highest level against the dollar since February and the yen rallied before the U.S. central bank also releases revised economic forecasts. Sweden’s krona rose to a two-month high versus the dollar after the jobless rate unexpectedly fell in May and a government research institute said the central bank won’t cut its main lending rate further.

“Markets are looking for a constructive outcome in terms of the Fed really explaining and clarifying,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “Markets are still reluctant to put on risk. I don’t think the market expects Bernanke to completely backtrack on the previous hint of tapering.”

The dollar fell 0.2 percent to 95.19 yen at 1:33 p.m. in New York after weakening 1.1 percent in the previous two days. Japan’s currency was little changed at 127.65 per euro. The euro gained 0.1 percent to $1.3409 after appreciating to $1.3416 yesterday, the highest since Feb. 13.

Technical Levels

The Dollar Index, which Intercontinental Exchange Inc. uses to monitor the greenback against the currencies of six U.S. trade partners, fell 0.1 percent to 80.531. The gauge’s 80.35 to 80.25 range is “an important test” that may suggest whether further “retracement” will develop, Niall O’Connor, a technical analyst at JPMorgan Chase & Co. in New York, wrote today in a report.

South African inflation slowed for the first time in five months, while the current account deficit unexpectedly shrank, improving the outlook for Africa’s largest economy. The rand erased declines and rallied 0.4 percent after the release of the inflation and current-account data to 9.9561 per dollar.

The ruble slid for a third day on weaker-than-forecast economic data as Russia canceled its second bond sale this month and the central bank chairman warned capital outflow remains “abnormally high.” Russia’s currency weakened 0.6 percent to 32.1895 versus the greenback.

Trading in over-the-counter foreign-exchange options totaled $20.8 billion, compared with $24.1 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yuan exchange rate was $8.8 billion, the largest share of trades at 42 percent. Dollar-yen options were the second most actively traded, at $4.9 billion, or 24 percent.

Options Data

Dollar-yuan options trading was 229 percent more than the average for the past five Wednesdays at a similar time in the day. U.S. dollar-yen options trading was 27 percent less than average.

Bernanke will hold a press conference in Washington following the Fed’s two-day meeting. He said on May 22 the central bank could reduce its monthly purchases of $45 billion of Treasuries and $40 billion of mortgage securities if the employment outlook shows sustainable improvement.

The benchmark 10-year Treasury yield climbed to 2.29 percent on June 11, the highest level since April 2012. It was little changed today at 2.21 percent.

The JPMorgan Global FX Volatility Index was at 10.58 percent. It climbed to a one-year high of 11.43 percent on June 13, while the average for the past 12 months is 8.65 percent.

Fed Views

“Bernanke’s going to be clear, as clear as the Federal Reserve chairman is, that they haven’t decided to do anything except to continue the current policy until the data change their mind,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York, said during an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Michael McKee. “And so far the data hasn’t changed their mind.”

The yen has strengthened 6.3 percent in the past month, the best performer among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 1.9 percent, while the dollar fell 2.8 percent.

The krona rose for a second day after the Swedish National Institute of Economic Research said on its website the Riksbank will keep its benchmark interest rate at 1 percent this year. The $500 billion economy will grow 1.5 percent this year and 2.5 percent in 2014 after expanding 0.7 percent in 2012, it predicted, raising estimates from March.

A separate report showed the Swedish unemployment rate fell to 8.2 percent in May from 8.7 percent a month earlier. Economists had expected a reading of 8.8 percent, according to the median estimate in a Bloomberg survey.

Sweden Economy

“All in all good Swedish numbers that should further lower the probability for the Riksbank cutting in July,” strategists at Danske Bank A/S in Copenhagen wrote in an e-mailed note. “It points to a further move lower” in the euro against the krona, they wrote.

Sweden’s krona advanced 0.9 percent to 6.3849 per dollar after reaching the strongest level since April 16. It gained 0.8 percent to 8.5573 per euro after touching the most since June 3.

New Zealand’s dollar rose for the first time in four days after Statistics New Zealand said the nation’s current-account deficit narrowed in the first quarter to 4.8 percent of gross domestic product from 5 percent in the previous three months.

The kiwi climbed 0.7 percent to 80.45 U.S. cents after dropping 1.4 percent during the previous three days.

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